Bitcoin Bearish Divergence Signals Risk of Further Price Breakdown as Hash Rate Falls

Bitcoin’s price remained stagnant on Saturday, hovering around $94,296, as the cryptocurrency market continued to digest various economic indicators, including the latest jobs report from the U.S. Bureau of Labor Statistics. This economic data, which revealed the creation of over 256,000 jobs and a drop in the unemployment rate to 4.1%, was a catalyst for broader market reactions that saw U.S. equities suffer sharp losses. As American stocks dropped, so too did Bitcoin, as bearish divergence formed, raising concerns about a potential price breakdown.

Bitcoin’s response to the news mirrored broader market trends. The Dow Jones and Nasdaq 100 indices both faced significant losses, shedding 697 and 317 points, respectively. Meanwhile, the bond market continued its downward trajectory, with the 30-year yield climbing to 5.0%. This sharp increase in yields is a sign that the market anticipates the Federal Reserve will maintain a hawkish stance, which typically dampens investor sentiment toward riskier assets like Bitcoin and altcoins.

Amid this market turbulence, Bitcoin’s price appears to be under significant pressure, with the formation of a concerning bearish divergence pattern. Data from IntoTheBlock indicates a notable retreat in Bitcoin’s hash rate, which fell to 750 TH/s on Saturday, January 11. This marks a decline from the 30-day high of 911.88 TH/s and below the 30-day average of 793 TH/s. The hash rate, which measures the speed at which Bitcoin’s network solves complex mathematical puzzles, plays a vital role in the overall health of the network. A falling hash rate is often seen as an indication of reduced miner activity and network security concerns.

Alongside the drop in hash rate, on-chain data suggests that Bitcoin’s market activity is slowing. The number of active Bitcoin addresses has fallen to 775,000 from 900,000 just days earlier, suggesting that traders may be pulling back or liquidating their positions. Notably, all spot Bitcoin ETFs reported a combined outflow of $572 million over the past two days, further reinforcing the idea that investors may be losing confidence in Bitcoin’s near-term prospects.

A Deeper Look at the Technical Indicators

The technical analysis of Bitcoin’s price action paints an increasingly grim picture. The daily chart reveals the formation of a classic head and shoulders pattern, one of the most well-known bearish formations in trading. This pattern is characterized by three peaks: a higher peak (the head), flanked by two smaller peaks (the shoulders). The neckline, a key support level, is located at $90,952, and a break below this level could signal the start of a more pronounced downtrend.

Further analysis of Bitcoin’s technical indicators reveals troubling signs of bearish divergence. Both the Relative Strength Index (RSI) and the Moving Average Convergence Divergence (MACD) are showing bearish divergence, a signal that Bitcoin’s price is moving in one direction while the momentum indicators move in the opposite direction. Specifically, the MACD histogram has dropped below the zero line, which historically indicates weakening bullish momentum.

The combination of the head and shoulders pattern and the bearish divergence suggests that Bitcoin’s price is at risk of breaking below key support levels. Should the price fall beneath the neckline at $90,952, Bitcoin could see a deeper correction. The first significant support level to watch is the 200-day moving average at $78,285, followed by $73,985, which marks the highest point reached by Bitcoin in March of the previous year.

Market sentiment, as reflected in on-chain metrics, is also aligning with the bearish outlook. With the number of active Bitcoin addresses dwindling, it’s clear that some traders are opting to sell rather than hold, signaling a shift in sentiment. Additionally, the outflows from Bitcoin ETFs suggest that institutional investors may be reducing their exposure to Bitcoin as concerns about a bearish breakout mount.

A Potential Bullish Reversal?

Despite the growing evidence of a potential bearish breakdown, there remains a glimmer of hope for Bitcoin bulls. The weekly chart shows that Bitcoin is forming a bullish pennant pattern, a continuation pattern that often signals a breakout to the upside. As long as Bitcoin remains above the $90,000 mark, this bullish pennant remains intact, providing a potential catalyst for upward price movement.

However, for this bullish scenario to play out, Bitcoin must hold above critical support levels, particularly the $90,000 threshold. A decisive break above this level could trigger a surge in buying momentum, leading to a continuation of the upward trend. For now, the $90,000 level remains a crucial point of contention for Bitcoin’s price action.

Bitcoin’s price is currently at a crossroads. The formation of a bearish divergence pattern, combined with a falling hash rate and reduced network activity, suggests that Bitcoin could be at risk of a significant price breakdown. If the $90,000 level fails to hold, further downside could be in store, with support levels at $78,000 and $73,000 potentially coming into play. On the other hand, the formation of a bullish pennant on the weekly chart offers a potential for a price reversal if Bitcoin can maintain its position above key support levels.

As always, market participants should stay vigilant, monitoring both technical indicators and macroeconomic developments to gauge the direction of Bitcoin’s price movement in the coming weeks.

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